Although profitable, trading in derivatives involves some degree of risk. For example, traders may act as market makers for certain derivatives and, in accumulating inventory, develop positions that result in market risk. The main risk is represented by the possibility of counterparty default, the estimation of which, on a per deal basis, is called the credit charge or bill (on the day of deal inception) and credit reserve movement (on following days, up to the expiration date of the deal).
Various analytical models exist that allow investment banks to estimate the risk associated with particular derivatives. Although it is possible to make estimates as to the risk and calculate an amount of reserve to set aside, one of the problems has been that financial institutions fail to appropriately credit an amount of the exposure to the actual business unit and trade creating the risk.